“Equities retreated for a second day in a row as investors shrugged off new stimulus measures from China and waited nervously for new economic data out of the US, Europe and Asia including purchasing managers’ indices, factory gate inflation, job openings and the ECB’s latest monetary policy decision,” says Russ Mould, investment director at AJ Bell.
“Mining stocks pulled the FTSE 100 lower, down 0.4% to 7,613, thanks to lower metal prices and a lacklustre response to China’s plans to achieve 5% growth this year. Beijing wants to sort out problems in the property sector and add more jobs in urban areas – but it just didn’t seem enough to get investors fired up.
“Also weighing on the UK blue-chip index was badly received guidance from Ashtead, which said full-year rental revenue growth would be at the low end of its 11% to 13% range.”
Ashtead
“Ashtead has been a major success over the past few decades thanks to more companies deciding to rent rather than own construction equipment as well as significant spending on infrastructure in the US where it mainly does business. That’s made investors consider Ashtead to be bulletproof, but the past few years have shown that it can occasionally be tough-going.
“An ordinary three-month period has prompted the company to guide for full year revenue growth at the low end of the range. North America is key for Ashtead as it accounts for the lion’s share of its business, so a difficult time in that geography is always going to have a material impact.
“What will provide some reassurance to investors is this appears to be a short-term issue relating to a lower level of emergency response activity and reduced demand from the entertainment industry thanks to strikes.
“The reduced level of profitability is a reminder of what happens to the company when demand drops – i.e., the fixed costs associated with storing and maintaining its fleet of equipment don’t really change too much. The company is also seeing an increase in financing costs.
“Publicly, Ashtead management seem bullish on the long-term demand drivers in the US which are underpinned by large government-backed infrastructure projects, even if a looming election could throw a spanner into the works.
“There appears little sign right now that Ashtead is about to disappoint on dividend growth – an area in which it has consistently delivered over many years. Any dilution in its commitment to growing the payout would be a real alarm bell for shareholders.”
Greggs
“Greggs continues to serve up tasty results as sales and profits once again move higher. This is a well-oiled machine that’s created a recipe for success.
“The company sells food and drink at affordable prices and in an efficient manner which means customers get served quickly. It continues to innovate and launch new products, keeping existing customers interested and enticing new ones into its stores.
“Greggs is getting more from existing stores by having them open for longer, while at the same time it continues to open new sites. Behind the scenes, it is reinvesting cash flow into manufacturing, distribution and logistics capabilities to support its growth.
“This drive to be the food-on-the-go king is paying off, with Greggs’ market share at an all-time high and the business has now grabbed the top spot for breakfast.
“It’s hard to think of another British company which remains a core name on the high street and which is still growing as much as Greggs. The brand is now iconic and its sausage rolls legendary.
“The success has enabled Greggs to give something back through different means, including breakfast clubs for school children, outlet stores where people can buy unsold items at a discount to avoid them going to waste, and investors continue to scoop up cash in the form of dividends.
“If you had to pick holes in its latest results, it’s that the 8.2% like-for-like sales growth in the first nine weeks of 2024 is less than the 9.4% growth achieved in the fourth quarter of 2023.
“The pace of growth actually slowed each quarter during the past year, albeit still delivering the kind of success most companies can only dream of.
“February was a washout month for all retailers due to the bad weather and that might explain the reduced growth reported by Greggs. It certainly doesn’t suggest something has gone wrong with the business.”
Travis Perkins
“You would expect a dividend cut to have a much more negative impact on Travis Perkins’ share price but investors definitely knew this was coming.
“Based on consensus forecasts the shares were trading on a roughly double-digit dividend yield – essentially the market had already been ringing the alarm bell on the sustainability of the payout.
“Shareholders may be reassured that management have recognised the difficult situation they are in and have grasped the nettle by not only slashing the dividend but also taking costs out of the business and looking to improve efficiency through reorganisation and the implementation of technology.
“Travis Perkins has been hit by a big drop-off in the housing and RMI (repair, maintenance and improvement) market. Weaker volumes, overhead cost inflation and rapid commodity price deflation is a difficult cocktail for the business to swallow.
“The hope will be the worst of these problems are now behind the company and it has the scope to recover as a leaner operator when conditions begin to improve.”
These articles are for information purposes only and are not a personal recommendation or advice.